The Biggest Tax Mistakes Immigrants Make (And How to Avoid Them)
Mistakes That Are Costly, Preventable, and Very Common
Every year, immigrants across the United States make tax mistakes that cost them money, create legal complications, or trigger IRS notices that take months to resolve. Almost none of these mistakes happen because of dishonesty or negligence. They happen because the U.S. tax system is genuinely complex and because no one explained the rules clearly.
This guide is about prevention. Understanding the most common mistakes before you make them is far easier and less expensive than fixing them afterward. Some of these mistakes result in paying more taxes than you owe. Others result in paying less, which can create legal problems. All of them are avoidable with the right knowledge.
Mistake 1: Not Filing a Tax Return at All
This is the most serious and most consequential tax mistake immigrants make.
Many immigrants assume — incorrectly — that if they do not have a Social Security Number, or if they are undocumented, or if their employer did not give them a tax form, they do not need to file taxes.
This assumption is wrong, and acting on it can have serious consequences.
The obligation to file a federal tax return in the United States is based on income level, not immigration status, not documentation status, and not whether you received the correct forms from employers.
If you earned income above the filing threshold — which is approximately $14,600 for a single filer in 2024 — you are generally required to file, period.
What happens if you do not file:
The IRS may eventually file a return on your behalf, called a substitute for return, using whatever income information they have. This return will use the least favorable deductions and filing status for you, resulting in the maximum possible tax bill. Interest and penalties will be added on top.
Additionally, tax filing history is frequently requested during immigration proceedings. Missing years of tax returns can raise serious questions during green card applications, visa renewals, and naturalization processes.
What to do:
File a tax return for every year you are required to do so. If you have missed prior years, file those past returns as soon as possible. The IRS has programs and processes for dealing with late returns, and coming into compliance voluntarily is significantly better than having the issue discovered later. A tax professional can help you understand your options for catching up on missed filings.
Mistake 2: Filing as a Non-Resident When You Are Actually a Resident for Tax Purposes
This mistake is particularly common among immigrants who arrived in the United States a few years ago but are still filing as non-residents because they are not permanent residents or citizens.
Here is the misunderstanding: tax residency in the United States is not the same as immigration residency.
You do not need a green card to be a tax resident. If you have been in the United States for enough days to meet the IRS Substantial Presence Test, you are classified as a resident alien for tax purposes — even if your immigration status is a temporary visa.
The Substantial Presence Test uses a formula based on days present in the current year and the two prior years. Generally, if you have been in the country for at least 183 days calculated using this formula, you meet the test.
Why this matters:
Non-resident aliens file Form 1040-NR and are only taxed on U.S.-source income. Resident aliens file Form 1040 and are taxed on worldwide income. Filing the wrong form means reporting income incorrectly.
If you file as a non-resident when you should have filed as a resident, you may have under-reported income (by not including worldwide income) and may face penalties when the IRS identifies the discrepancy.
What to do:
Before filing each year, determine your tax residency status using the IRS Substantial Presence Test. If you are uncertain, a tax professional familiar with international tax situations can help you determine the correct status. The IRS website also provides tools and worksheets for this calculation.
Mistake 3: Failing to Report Foreign Income
This is one of the most commonly misunderstood areas of U.S. tax law for immigrants, and it is one where the consequences can be significant.
The United States taxes its tax residents — anyone classified as a resident alien or citizen — on their worldwide income. This means income you earn in any country is potentially subject to U.S. tax, not just income you earn in America.
Immigrants who have income from their home countries frequently believe that this income is not reportable in the United States because it was earned elsewhere, or because taxes were already paid on it in the home country.
Both assumptions can be wrong.
What must be reported:
The following types of foreign income are generally reportable on a U.S. tax return for resident aliens:
- Wages or salary earned abroad
- Freelance or business income from foreign clients
- Rental income from property in your home country
- Interest and dividends from foreign bank accounts or investments
- Pension income from a foreign employer
The Foreign Tax Credit:
The U.S. does have a mechanism to avoid double taxation. If you paid taxes on income in a foreign country, you may be able to claim a Foreign Tax Credit on your U.S. return, which reduces your U.S. tax by the amount you paid abroad. This is done using IRS Form 1116. The rules are detailed, but the credit often significantly reduces or eliminates the U.S. tax on foreign income.
What to do:
If you have income from outside the United States, report it on your U.S. tax return and claim the Foreign Tax Credit if applicable. Do not assume foreign income is invisible to the IRS. Tax information sharing agreements between countries have expanded significantly, and the IRS has increasingly sophisticated means of identifying unreported foreign income.
Mistake 4: Failing to Report Foreign Financial Accounts (FBAR)
Separate from reporting foreign income on your tax return, there is an additional requirement that many immigrants are completely unaware of: the Foreign Bank Account Report, commonly called the FBAR.
If you are a U.S. tax resident who has financial accounts outside the United States, and the combined value of those accounts exceeds $10,000 at any point during the calendar year, you are required to file an FBAR.
The FBAR is filed separately from your tax return using FinCEN Form 114, submitted online through the Financial Crimes Enforcement Network website. The deadline is April 15, with an automatic extension to October 15.
The penalties for failing to file:
FBAR violations carry severe penalties. Non-willful failure to file can result in penalties of up to $10,000 per violation. Willful failure to file can result in penalties of up to $100,000 or 50 percent of the account balance per violation, as well as potential criminal prosecution.
These penalties may seem disproportionate for what might feel like a paperwork oversight. But the IRS treats foreign account reporting very seriously, and the penalties reflect that.
What to do:
If you have bank accounts, investment accounts, pension accounts, or other financial accounts outside the United States, track their balances throughout the year. If the combined balance exceeds $10,000 at any point, file the FBAR by the deadline.
There is also a related tax form called Form 8938, filed as part of your tax return, which reports certain foreign financial assets above specific thresholds. A tax professional familiar with international reporting requirements can ensure you meet both obligations.
Mistake 5: Missing the Earned Income Tax Credit Due to ITIN Filing
As discussed in the previous article, the Earned Income Tax Credit is one of the most valuable tax benefits available to lower and moderate-income workers. For a worker with two children, it can be worth over $6,000.
Many immigrants who file taxes using an ITIN do not know that they are ineligible for the EITC with an ITIN, and they either miss out on planning around this or believe they claimed it when they did not.
But there is an important positive element to this situation: if you later obtain a Social Security Number, you may be able to go back and claim the EITC for prior years during which you had earned income and a valid SSN. The IRS allows claims for prior years within certain time limits.
What to do:
If you are currently filing with an ITIN and expect to obtain an SSN in the future, keep this opportunity in mind. When you receive your SSN, consult a tax professional about whether you are eligible to file amended returns claiming prior-year EITC amounts.
If you are currently filing with an SSN and have qualifying income, ensure you are claiming the EITC if eligible. Many eligible workers fail to claim this credit because they are unaware of it.
Mistake 6: Claiming Dependents Incorrectly
Many immigrants support family members, both in the United States and abroad. The question of whether those family members can be claimed as dependents on a U.S. tax return is complicated and is an area where errors are common.
Dependents who can generally be claimed:
To claim someone as a dependent, they must generally be either a qualifying child or a qualifying relative. The rules include requirements around relationship, residency, income, and financial support.
For children living in the United States, the rules are relatively straightforward. For family members living outside the United States, the rules are much more restrictive. In most cases, dependents must have lived in the United States, Canada, or Mexico for at least part of the year to be claimed on a U.S. tax return.
Common errors:
Some immigrants claim foreign-residing family members as dependents, not realizing this generally does not qualify under U.S. tax law. Others claim the Child Tax Credit for children who do not have Social Security Numbers, which is not permitted.
What to do:
Before claiming anyone as a dependent, verify that the person meets the IRS requirements for a qualifying child or qualifying relative. Ensure that any child for whom you claim the Child Tax Credit has a valid SSN. If you have questions about specific family situations, a tax professional can provide guidance.
Mistake 7: Incorrect Treatment of Self-Employment Income
Many immigrants work as independent contractors, freelancers, or informal self-employed workers — driving for rideshare companies, cleaning homes, doing construction work, providing translation services, or running small businesses.
This type of income is fully taxable, but it is taxed differently from employee wages, and many self-employed immigrants are unaware of the full scope of their obligations.
The self-employment tax:
When you work as an employee, your employer pays half of your Social Security and Medicare taxes on your behalf. When you are self-employed, you pay both halves yourself, for a combined self-employment tax rate of 15.3 percent on net self-employment income. This is in addition to income tax.
Many self-employed immigrants who are filing taxes for the first time are shocked by this bill because they were not withholding taxes from their earnings throughout the year.
Quarterly estimated payments:
Self-employed individuals are generally required to make quarterly estimated tax payments to the IRS throughout the year. If you do not, you may face an underpayment penalty when you file your annual return.
Deductible business expenses:
Self-employed individuals can deduct legitimate business expenses from their taxable income. This includes things like tools and equipment, business-related travel, a portion of phone expenses, business insurance, and other costs directly related to earning income. Keeping records of these expenses throughout the year reduces your taxable income and therefore your tax bill.
What to do:
If you have self-employment income, set aside approximately 25 to 30 percent of your net income for taxes throughout the year. Make quarterly estimated payments to the IRS using Form 1040-ES. Keep records of all business expenses. Consider working with a tax professional who has experience with self-employed clients, as the deduction opportunities and compliance requirements are more complex than for standard employees.
Mistake 8: Ignoring State Tax Obligations
Federal taxes receive most of the attention, but state tax obligations are real and can be significant.
Immigrants who are focused on their federal tax return sometimes overlook the requirement to file a state return, or they file in the wrong state, or they miss the state filing deadline.
Common state-related mistakes include:
- Failing to file a state return in a state that requires one
- Filing in only one state when you lived or worked in multiple states during the year
- Missing state-specific credits and deductions you are entitled to
What to do:
Identify which state or states you lived and worked in during the tax year. Research whether each of those states has an income tax. File a state return for each state where required. Note that some tax software automatically prepares state returns alongside federal returns, which simplifies the process.
Mistake 9: Falling for Tax Scams Targeting Immigrants
Unfortunately, tax scams disproportionately target immigrant communities, and the harm they cause can be significant.
Common scams include:
IRS impersonation calls. Scammers call and claim to be IRS agents, demanding immediate payment of taxes allegedly owed. They may threaten arrest, deportation, or other consequences if you do not pay immediately. The IRS does not initiate contact by phone to demand immediate payment. If you receive such a call, hang up.
Fraudulent tax preparers. Some unscrupulous tax preparers promise inflated refunds, charge excessive fees, or file incorrect returns that expose their clients to IRS penalties. Choose a tax preparer carefully. Look for IRS-authorized preparers through the IRS website, or use free services like VITA.
Ghost preparers. These are tax preparers who refuse to sign the returns they prepare. A legitimate paid preparer must sign your return and provide their Preparer Tax Identification Number (PTIN). A return prepared by someone who refuses to sign is a red flag.
Fake charities. Around tax time, fake charities solicit donations and promise tax deductions. Verify any charity using the IRS Tax Exempt Organization Search tool before making a deductible donation.
What to do:
Understand that the IRS does not call people unexpectedly and demand immediate payment. Choose tax preparers carefully and verify their credentials. Never sign a blank tax return or agree to have a refund deposited into someone else’s account.
Mistake 10: Not Keeping Tax Records
After filing a return, many immigrants simply discard the paperwork. This is a mistake that can cause serious problems if questions arise later.
The IRS generally has three years from the filing date to audit a standard return, and six years if it believes there is a substantial understatement of income. In cases of fraud, there is no time limit.
You should generally keep your tax records — including the filed return and all supporting documents — for at least seven years.
Tax records also serve important purposes beyond IRS compliance. Immigration applications frequently request multiple years of tax returns. Loan applications may require tax documents. Employment and rental applications sometimes ask for income verification that tax returns provide.
What to do:
After filing, save a digital or physical copy of your complete tax return and all supporting documents. Organize returns by year so they are easily accessible when needed. A simple folder system — physical or digital — is sufficient.
A Final Word: Getting Help Is Not a Weakness
The U.S. tax system is genuinely complicated. Even well-educated Americans with strong English skills frequently make tax mistakes or rely on professional help to file correctly.
For immigrants navigating a system in a new language, often while managing other complex life challenges, asking for help is not a weakness. It is a smart decision.
Free resources like VITA exist precisely because the government recognizes that many people need assistance navigating the tax system. Using these resources is not an admission of failure — it is the intelligent use of available support.
If your situation is complex — if you have foreign income, foreign accounts, self-employment income, multiple states, or dual-status issues — investing in professional tax help for at least your first few years of filing is money very well spent.
The goal is to pay exactly what you owe — not more, not less — to stay compliant with the law, and to protect the financial and immigration future you are building in the United States.
Conclusion: Knowledge Prevents the Mistakes That Cost the Most
Every tax mistake covered in this guide is preventable. Not one of them requires a law degree or advanced financial knowledge to avoid. They require only clear information — which you now have.
File every year when required. Know your residency status. Report all worldwide income. Understand your FBAR obligations if you have foreign accounts. Claim the credits you are entitled to. Pay your self-employment taxes. File your state return. Protect yourself from scams. Keep your records.
These principles, followed consistently, will keep you in compliance with U.S. tax law and protect both your finances and your future in this country.
The four articles in this tax series have given you a foundational understanding of how the U.S. tax system works, what identification you need, how to file your return, and how to avoid the most costly mistakes. Continue your financial education with MARVODYN’s guides on banking, credit, and investing to build the complete financial foundation that every immigrant deserves.
